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US government bond prices fell on Friday after a Labor Department report showed that wages had risen more than expected in August.
The 10-year benchmark yield rose to 2.930%, according to Tradeweb, compared with 2.877% on Thursday. The two-year Treasury bond yield, which generally follows the expectations of the Federal Reserve's interest rate policy, rose from 2.641% to 2.674% on Thursday. Yields increase as bond prices fall.
Yields rose after the Ministry of Labor announced Friday that average hourly earnings rose 2.9% from a year earlier in August, while the economy created 201,000 jobs for the month. Economists surveyed in the Wall Street Journal predicted a gain of 192,000. The unemployment rate remained stable at 3.9%.
Investors looked for signs that the labor market tended to raise wages, which could accelerate inflation. This could encourage the Fed to continue raising interest rates, even as investors are reluctant to push 10-year yields well above 3%.
"The strength of earnings was something that people had been waiting to see for a long time," said Dan Mulholland, a senior trader at Crédit Agricole. The data was impressive enough to suggest that the Fed could reduce its forecast of three rate increases in 2019 at its September meeting, he said.
Investors are also of the opinion that corporate bond yields should rise again this month and that the size of Treasury bond auctions should increase. The government should auction the titles of three, ten and thirty next week.
The increase in yields could be mitigated by persistent turmoil in emerging markets and weak growth in other developed economies, said Andrew Brenner, head of fixed income at NatAlliance Securities. While growth in the United States remains robust, "the question is how long can the United States remain an island insensitive to what is happening on a global scale," he said.
Write to Daniel Kruger at [email protected]
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